Exhibit 99.2
CONTACT:
Barry H. Bass
Chief Financial Officer
(301) 986-9200
bbass@first-potomac.com
First Potomac Realty Trust
7200 Wisconsin Avenue
Suite 310
Bethesda, MD 20814
www.first-potomac.com
FOR IMMEDIATE RELEASE
FIRST POTOMAC REALTY TRUST ANNOUNCES
FIRST QUARTER 2004 RESULTS
First Quarter Highlights
| | • | | Reports FFO of $2.4 million, or $0.24 per diluted share, after $0.02 per diluted share charge |
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| | • | | Same-property NOI increases 4.0% |
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| | • | | Declares dividend of $0.20 per share |
BETHESDA, MD (May 6, 2004) – First Potomac Realty Trust (NYSE: FPO), a real estate investment trust that acquires and operates industrial and flex properties in the Washington, D.C. metropolitan area and other major markets in Virginia and Maryland, reported results for the first quarter ended March 31, 2004, the Company’s first complete quarter of operations subsequent to its initial public offering, which closed on October 28, 2003.
The net loss for the Company for the first quarter of 2004 was $0.2 million compared with a net loss of $0.9 million for the First Potomac Predecessor for the first quarter of 2003. First quarter 2004 results include a non-cash charge of $0.2 million, or $0.02 per diluted share, for the write-off of deferred financing costs associated with the restructuring of a mortgage loan as discussed in more detail below. For the three months ended March 31, 2004, the Company’s funds from operations were $2.4 million, or $0.24 per diluted share (after the charge related to the write-off of deferred financing costs of $0.02 per diluted share).
The Company’s pre-IPO portfolio was 94% leased as of March 31, 2004, and the Company’s entire portfolio, including the four assets that it acquired in the fourth quarter of 2003, was 90% leased. A breakout of the Company’s assets as well as additional information regarding the Company’s results of operations can be found in the Company’s First Quarter 2004 Supplemental Financial Report, which is posted on the Company’s website (www.first-potomac.com).
Douglas J. Donatelli, chief executive officer of First Potomac Realty Trust stated, “The completion of our first full quarter of operations as a public company represents another early step in the execution of our business plan to focus on industrial and flex properties in the economically strong southern Mid-Atlantic region. Our properties performed well, producing a 4.0% increase in same-property NOI. We completed approximately 175,000 square feet of leasing in the quarter with a 93% tenant retention rate and average rental rate increases of 18% for new leases and 4% for renewal leases. Leasing activity at our properties is strong as our markets continue to benefit from the improvement in the economy as well as increased spending and investment by the U.S. Government and government contractors.
“While we did not complete any new acquisitions during the first quarter, we announced the acquisition of Herndon Corporate Center for $20.5 million just after the quarter ended and expect to reach our post-IPO goal of $150 million in acquisitions by mid year. We capped the quarter with the declaration of a $0.20 per share dividend.”
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Acquisitions
Herndon Corporate Center– On April 27, 2004, the Company acquired Herndon Corporate Center, a 127,353-square-foot, single-story flex property in Herndon, Virginia, for $20.5 million. The acquisition was financed with the Company’s available cash, borrowings under the Company’s revolving line of credit and the assumption of a $9.1 million, fixed-rate first mortgage loan. The property is currently 100% leased to 14 tenants, with the U.S. Government being the largest tenant, occupying 23% of the space. Based upon leases in place, Herndon Corporate Center is expected to generate first year net operating income of $1.9 million, representing a 9.3% return on the purchase price.
Financial Structure
At March 31, 2004, the Company’s debt to total market capitalization ratio was 36.5% based upon the closing stock price of $20.90. The interest coverage ratio for the quarter was 2.3 times and the fixed charge coverage ratio was 2.0 times – up from 2.2 and 1.9 times, respectively, for the quarter ended December 31, 2003.
Of the $120.5 million of debt outstanding at March 31, 2004, $95 million was fixed-rate debt with a weighted average interest rate of 7.1% and a weighted average maturity of 5.9 years. The balance, or $25.5 million, was floating rate debt with a weighted average interest rate of 3.6% and a weighted average maturity of 2.3 years. All of the Company’s floating rate debt is capped.
Rumsey/Snowden Loan Refinancing– On January 30, 2004, the Company paid down $7 million of the $22 million first mortgage loan encumbering its Rumsey and Snowden properties. As part of this restructuring, first quarter 2004 results include a non-cash charge of $0.2 million, or $0.02 per diluted share, for the write-off of deferred financing costs. This transaction resulted in reducing the loan’s balance to $15 million, extending the loan’s maturity date one year and reducing the effective interest rate on the loan from 4.57% to 3.47% (by reducing the LIBOR floor from 2.0% to 1.1% and reducing the spread over LIBOR from 257 basis points to 235 basis points). The Company incurred no prepayment penalties for this transaction.
Dividends
On April 15, 2004, the Company declared a dividend of $0.20 per common share for the Company’s first quarter ended March 31, 2004. The dividend is payable on May 10, 2004, to shareholders of record on April 30, 2004.
Earnings and FFO Guidance
The Company issued guidance for second quarter funds from operations of $0.27 to $0.29 per diluted share and net income of $0.00 to $0.02 per diluted share. Barry H. Bass, the Company’s chief financial officer, commented, “We had projected closing some acquisitions during the first quarter that have not yet been completed, so our second quarter results will not reflect a full-quarter impact from these acquisitions. Based on our current acquisition activity, we expect to complete mid-year acquisitions that would, together with our current portfolio, generate a quarterly FFO run rate in the range of $0.40 to $0.45 per diluted share ($1.60 to $1.80 per diluted share annualized). Assuming no additional acquisitions and no additional equity issuance in 2004, completion of these targeted acquisitions would result in 2004 FFO of $1.35 to $1.45 per diluted share. However, we may issue equity in order to position the Company to take advantage of additional acquisition opportunities.”
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Investor Conference Call and Webcast
First Potomac Realty Trust will host a conference call on Friday, May 7, 2004, at 11:00 a.m. EST to discuss first quarter results. The number to call for this interactive teleconference is (617) 801-9713. A replay of the conference call will be available through May 14, 2004, by dialing (617) 801-6888 and entering the confirmation number, 63815739.
The Company will also provide an online Web simulcast and rebroadcast of its 2004 first quarter conference call. The live broadcast of the call can be accessed from the Investor Info page of First Potomac’s web site, www.first-potomac.com, as well as www.streetevents.com and www.fulldisclosure.com on May 7, 2004, beginning at 11:00 a.m. EST. The online replay will follow shortly after the call and continue for 90 days.
About First Potomac Realty Trust
First Potomac Realty Trust is a self-administered, self-managed real estate investment trust that acquires and operates industrial and flex properties in the Washington, D.C. metropolitan area and other major markets in Virginia and Maryland. The Company owns a 40-building portfolio totaling approximately 3.0 million square feet. The Company’s largest tenant is the U.S. Government, which leases approximately 550,000 square feet in the Company’s properties under seventeen leases.
Non-GAAP Financial Measures
Funds from Operations– Funds from operations (“FFO”) represents net income (loss) before minority interest (computed in accordance with generally accepted accounting principles), including gains (or losses) from debt restructuring and excluding any gains or losses on the sale of property, plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. The Company considers funds from operations a useful additional measure of performance for an equity REIT because it facilitates an understanding of the operating performance of its properties without giving effect to real estate depreciation and amortization, which assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, the Company believes that FFO provides a meaningful additional indication of its performance. The Company also considers funds from operations an appropriate supplemental performance measure given its wide use by investors and analysts. The Company’s funds from operations calculations are reconciled to net income in the Company’s Consolidated Statement of Operations included in this release.
Same-Property NOI–The Company defines net operating income (“NOI”) as operating revenues (rental income, tenant reimbursements, and other income) less property and related expenses (property expenses, real estate taxes, and insurance). Management believes that NOI is a useful supplemental measure of the Company’s operating performance. Other real estate investment trusts (“REITs”) may use different methodologies for calculating NOI, and accordingly, the Company’s NOI may not be comparable to other REITs. The Company’s same-property NOI calculations are reconciled to consolidated NOI at the end of this release.
Forward Looking Statements
The forward-looking statements contained in this press release are subject to various risks and uncertainties. Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, there can be no assurance that its expectations will be achieved. Certain factors that could cause actual results to differ materially from the Company’s expectations include changes in general or regional economic conditions; the Company’s ability to timely lease or re-lease space at current or anticipated rents; changes in interest rates; changes in operating costs; the Company’s ability to complete acquisitions on acceptable terms; and other risks detailed in the Company’s Annual Report on Form 10-K and described from time to time in the Company’s filings with the SEC. Many of these factors are beyond
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the Company’s ability to control or predict. Forward-looking statements are not guarantees of performance. For forward-looking statements herein, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.
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FIRST POTOMAC REALTY TRUST
AND FIRST POTOMAC PREDECESSOR
Consolidated and Combined Statements of Operations
Three Months Ended March 31, 2004 and 2003
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| | | FIRST POTOMAC | | FIRST POTOMAC |
| | | REALTY TRUST | | PREDECESSOR |
| | | March 31, 2004
| | March 31, 2003
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| Revenues: | | | | | | | | |
| Rental income | | $ | 6,651,804 | | | $ | 3,688,283 | |
| Tenant reimbursements and other | | | 1,060,695 | | | | 625,657 | |
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| Total revenue | | | 7,712,499 | | | | 4,313,940 | |
| Operating expenses: | | | | | | | | |
| Property operating | | | 1,631,794 | | | | 648,261 | |
| Real estate taxes and insurance | | | 709,137 | | | | 399,883 | |
| General and administrative | | | 720,098 | | | | 542,742 | |
| Depreciation and amortization | | | 2,604,911 | | | | 1,064,243 | |
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| Total operating expenses | | | 5,665,940 | | | | 2,655,129 | |
| Operating income | | | 2,046,559 | | | | 1,658,811 | |
| Other expenses (income): | | | | | | | | |
| Interest expense | | | 2,067,606 | | | | 2,749,027 | |
| Interest and other income | | | (35,062 | ) | | | (99,617 | ) |
| Equity in (earnings) losses of investees | | | — | | | | 54 | |
| Loss from early retirement of debt | | | 212,250 | | | | — | |
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| Total other expenses | | | 2,244,794 | | | | 2,649,464 | |
| Minority interests | | | (27,629 | ) | | | (82,758 | ) |
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| Net Loss | | | (170,606 | ) | | | (907,895 | ) |
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| Depreciation and amortization | | | 2,604,911 | | | | | |
| Minority interests | | | (27,629 | ) | | | | |
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| Funds from operations (FFO) | | $ | 2,406,676 | | | | | |
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| Weighted average common shares outstanding – basic and diluted | | | 8,634,000 | | | | | |
| Net loss per share – basic and diluted | | $ | (0.02 | ) | | | | |
| Weighted average common shares and units outstanding – basic FFO | | | 10,030,523 | | | | | |
| Weighted average common shares and units outstanding – diluted FFO | | | 10,157,151 | | | | | |
| FFO per share – basic and diluted | | $ | 0.24 | | | | | |
Basis of presentation:
The unaudited Condensed and Consolidated Combined Statement of Operations of First Potomac Predecessor for the three months ended March 31, 2003, are based on the Combined Historical Statements of Operations of the First Potomac Predecessor, the designation for the entities comprising our historical operations prior to October 28, 2003. The historical operations include the activities of First Potomac Realty Investment Limited Partnership (our operating partnership), First Potomac Realty Investment Trust, Inc. (the predecessor general partner of our operating partnership) and First Potomac Management, Inc. Further information regarding the Company’s historical operations, organizational structure and formation transactions is discussed in detail in First Potomac Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2003.
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FIRST POTOMAC REALTY TRUST
Consolidated Balance Sheets
| | | | | | | | | |
| | | (Unaudited) | | |
| | | March 31, 2004
| | December 31, 2003
|
| Assets: | | | | | | | | |
| Rental property, net | | $ | 206,939,622 | | | $ | 208,334,677 | |
| Cash and cash equivalents | | | 8,748,900 | | | | 16,307,508 | |
| Escrows and reserves | | | 2,568,143 | | | | 3,422,473 | |
| Accounts and other receivables, net of allowance for doubtful accounts of $306,793 and $144,711, respectively | | | 681,682 | | | | 575,362 | |
| Accrued straight-line rents, net | | | 1,878,111 | | | | 1,805,679 | |
| Deferred costs, net | | | 3,102,956 | | | | 3,205,534 | |
| Prepaid expenses and other assets | | | 2,685,432 | | | | 773,040 | |
| Intangible assets, net | | | 9,305,659 | | | | 9,723,735 | |
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| Total assets | | $ | 235,910,505 | | | $ | 244,148,008 | |
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| Liabilities: | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 1,318,710 | | | $ | 1,525,992 | |
| Accrued interest | | | 432,073 | | | | 151,861 | |
| Rents received in advance | | | 1,041,462 | | | | 801,640 | |
| Tenant security deposits | | | 1,072,657 | | | | 1,025,645 | |
| Mortgage loans | | | 120,543,017 | | | | 127,840,126 | |
| Deferred market rent | | | 704,457 | | | | 803,428 | |
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| Total liabilities | | | 125,112,376 | | | | 132,148,692 | |
| Minority interest | | | 19,699,747 | | | | 19,866,928 | |
| Shareholders’ equity: | | | | | | | | |
| Common stock, $0.001 par value, 100,000,000 shares authorized: 8,634,000 shares issued and outstanding | | | 8,634 | | | | 8,634 | |
| Additional paid-in capital | | | 117,525,629 | | | | 117,525,629 | |
| Deficit | | | (26,435,881 | ) | | | (25,401,875 | ) |
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| Total shareholders’ equity | | | 91,098,382 | | | | 92,132,388 | |
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| Total liabilities and shareholders’ equity | | $ | 235,910,505 | | | $ | 244,148,008 | |
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FIRST POTOMAC REALTY TRUST
Net Operating Income (NOI)
Same-Property Analysis
Three Months Ended March 31, 2004 and 2003
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| | | FIRST POTOMAC | | FIRST POTOMAC |
| | | REALTY TRUST | | PREDECESSOR |
| | | March 31, 2004
| | March 31, 2003
|
| Total revenue | | $ | 7,712,499 | | | $ | 4,313,940 | |
| Property operating | | | 1,631,794 | | | | 648,261 | |
| Real estate taxes and insurance | | | 709,137 | | | | 399,883 | |
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| NOI | | | 5,371,568 | | | | 3,265,796 | |
| Less: Non same-property NOI | | | (2,499,000 | ) | | | (504,000 | ) |
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| Same-property(1) NOI – GAAP basis | | | 2,872,568 | | | | 2,761,796 | |
| Straight-line revenue, net | | | (6,903 | ) | | | (17,344 | ) |
| Deferred market rental revenue | | | (10,044 | ) | | | — | |
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| Same-property NOI – cash basis | | $ | 2,855,621 | | | $ | 2,744,452 | |
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(1) Same properties for the periods compared include Plaza 500, Van Buren Business Park, 6600 Business Parkway, 13129 Airpark Road, 4200 and 4212 Technology Court, Newington Business Park Center, Crossways Commerce Center I, Crossways Commerce Center II and the Coast Guard Building.
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